CAP-AND-TRADE: QUESTIONS ARISING

It is still THE DEBATE OF OUR TIME: Cap-And-Trade or Carbon Tax?

Kyoto carbon trade: market solution or illusion?
Gerard Wynn, June 21, 2007 (Reuters)

WHO
James Cameron, vice-chairman of Climate Change Capital (CCC), Keith Allott, World Wildlife Fund (WWF), Yvo de Boer, head of UN Secretariat, Kyoto Clean Development Mechanism (CDM), Axel Michaelowa, researcher, University of Zurich, chief of UN consultant, Perspectives, and former adviser, CDM
developing nations, where many credits are purchased (click to enlarge)

WHAT
“Carbon trading” or “cap-and-trade” is the most commonly discussed and practiced method of controlling greenhouse gas (GHG) emissions. Caps are placed on emissions by a neutral authority. Those who need to produce more than their cap buy the privilege from those who need to produce less. Or buy credits (offsetting) to fund emissions-diminishing projects like non-emitting renewables installations or reforesting projects. But some have gamed the trading and offsetting processes, leaving questions about whether “cap-and-trade” is the best way to cut GHGs.

WHEN
The institution of the Kyoto Protocols in 1997 started the development of GHG-cutting processes.

WHERE
An international issue centered at the UN and the EU where controls are being exerted to make cap-and-trade systems work.

WHY
- Huge amounts of money are going into offsetting projects. CCC alone has raised $1 billion.
- Two important questions arise about offsetting by funding projects in developing countries: Would the project be done anyway (giving credit where credit is not due)? And is the project taking away from another project (creating no real new GHG cut)? In other words, “additionality”: does the funding create “additional” GHG cuts? In India, it is routine for papers to be faked. A recent analysis found 5 of 19 projects should have been rejected.
- UN secretariat, CDM: administrators trying to sort these questions out.
the Clean Development Mechanism process (click to enlarge)

QUOTES
- Cameron (on funding wind energy projects with offsets): "Be pragmatic: what do you want? We're trying to effect an energy transformation, this is one of the levers…"
Allott: "We need to increase the burden of proof of emissions cuts…"
- De Boer: "'Additionality' has haunted the Clean Development Mechanism since its inception…It requires you to judge what would have happened otherwise. Without a time machine that's rather complicated. To state with absolute certainty what would've happened in the absence of CDM is very difficult."
- Michaelowa: "It's routine practice for Indian project developers to fake documents, for example back-dating board approval, that they considered a project on the basis of the Kyoto Protocol…"